Bitcoin Scams and the Rise of Crypto-Fraud

Cryptocurrencies have been a trending topic in recent years. Once reserved for fringe factions of the cyberspace realm, these digital exchanges have gone mainstream and are quickly approaching worldwide legitimacy. They have consistently made headlines with skyrocketing values and sudden plunges, creating excitement and possibility for many investors. The ascending popularity of crypto has created new opportunities for profits while also opening a fresh channel for fraud.

Here’s a look at some of the scams surrounding cryptocurrency and how you can limit the risk if you own or trade in crypto.

Bitcoin Scams

Bitcoin is the most well-known and widely used cryptocurrency in circulation. As of March 2021, there are over 70 million Bitcoin wallet users around the world. It is quickly becoming mainstream, with many retailers, corporations, and even financial institutions accepting bitcoin for payments and other transactions. Tesla now accepts bitcoin payments for their electric cars and other products, while Microsoft allows users to credit many account-based services they provide with it. There are also rumblings that some of the big Wall Street banks are gearing up to adopt bitcoin as an asset class soon.

This growing acceptance and use mean that more and more people are using bitcoin every day. With more users comes more data and more opportunities for fraudsters to access and steal personal information. The bitcoin ‘wallet’ is a digital account that stores a user’s personal data and allows them to make transactions within the blockchain technology that powers the trade of the cryptocurrency. Wallet providers exist in many apps and software that are now commonly used. Coinbase, the largest crypto exchange in the world, just went public with an estimated value nearing $100 billion.

While exchanges and service providers like Coinbase have security measures in place, such as dual factor identification, encryption, and password authentication, the valuable data that they store is an enticing asset for cyberthieves. This data can be gathered through many of the old fashion means, including phishing, hacks, and malware. Once stolen, cyberthieves can gain access to the bitcoin you own, resulting in financial losses or using your personal information for various other purposes.

There are other scams out there in addition to threat actors gaining direct access to your bitcoin wallet. One man in the UK lost over $500,000 by falling for a scam involving a fake Twitter account posing as Elon Musk. The scammers tricked the guy with false claims of doubling his investment, only to have it disappear altogether, with thieves cashing out the stolen bitcoin days afterwards. While this type of scam may have obvious red flags for those who know the basics of identity protection, such incidents continue to increase with the rising value of bitcoin. This same ‘giveaway’ scam has nefariously secured more than $18 million in the first quarter of 2021, surpassing the $16 million in stolen bitcoin in all of 2020.

Fake bitcoin exchanges are another common scam. These appear as legitimate apps but are only developed to take user’s money and data. Other scams have been adapted to meet the new technologies involved in bitcoin trading. This is seen in a recent U.S Commodity Futures Trading Commission report warning consumers of pump-and-dump schemes often associated with penny stocks. These are only a few of the top threats currently out there, and the list continues to grow. Bitcoin scams seem poised to evolve and adapt as thieves take advantage of the many outlets, new and old, for profiting from the technologies and opportunities associated with crypto exchanges.

Guard Your Private Security Keys

One significant first step to reducing the risk of these scams is to guard the private security key associated with any bitcoin you own. These security keys are a secret 256-bit long alphanumeric password number picked at random when you make a bitcoin wallet. They allow you to send and spend the bitcoin you own and are the literal keys to every transaction. Access to this number can also allow thieves to steal and spend your bitcoin. Never share this number with anyone, and make sure that it is stored in a secure location on your computer or digital wallet. Creating an offline backup of these security keys is also a good idea.

Limiting the Risk of Crypto-Fraud

While bitcoin is king, the growing number of other cryptocurrencies are all susceptible to fraud as well. There are a few key considerations to keep in mind to limit the risk of crypto fraud, regardless of which currency you own or trade.

  • The private security key mentioned above should be treated as currency in and of itself. Scammers may attempt to trick you into giving up this key by posing as a representative of a crypto wallet over the phone or via email. Never divulge this information, as it almost always leads to theft or fraud.
  • Password protection and dual-factor identification are also important to prevent thieves from gaining direct access to a crypto wallet. This can occur through email hacks and malware infection but can be limited by choosing a strong, unique password and multiple layers of authentication.
  • Bitcoin giveaways on Twitter or any other social media platform are scams. As alluring as it might be to double your money or get rich quickly, you need to be as cautious with bitcoin and other cryptocurrencies as you are with dollars in your savings account.
  • Using a VPN for your crypto transactions can help block hackers from accessing your wallet.
  • Have an identity theft restoration plan in place to limit the impact crypto fraud can have if you do become a victim.

Bitcoin and other cryptocurrencies have generated excitement and profits for investors of all types. That sentiment is shared by cybercriminals who have adapted their many scams to reach deep into this rapidly growing sector. Although gaining in acceptance and use, crypto remains volatile by nature. Hedge your bet by increasing awareness of these scams and limiting your risk. The future of cryptocurrency looks bright, but it will always have a dark side.

LibertyID provides expert, full service, fully managed identity theft restoration to individuals, couples, extended families* and businesses. LibertyID has a 100% success rate in resolving all forms of identity fraud on behalf of our subscribers.

*LibertyID defines an extended family as: you, your spouse/partner, your parents and parents-in-law, and your children under the age of 25.